Exchange of approximately C$1.0 billion of Connacher’s debt for common shares of Connacher, including accrued and unpaid interest;

The issuance by Connacher of US$35 million principal amount of new second lien convertible notes due August 31, 2018 (the “New Convertible Notes”);

The Company will have the option to accrue and compound interest payments due on the New Convertible Notes;

At the option of Connacher, the funding of a new C$30 million first lien term loan facility (“New Term Loan Facility”) to replace Connacher’s existing C$30 million revolving credit facility;

Reduction of annual interest expense by approximately C$80 million; and

The Existing First Lien Term Loan will be unaffected.

Additional details regarding the Recapitalization, including the terms of the New Convertible Notes and New Term Loan Facility are contained in the summary term sheets attached to this news release (the “Term Sheets”).

The Recapitalization is the result of the Company’s initiative, announced December 1, 2014, to devise and implement a strategy to address its liquidity and capital structure. The recent extraordinary shift in commodity prices has severely constrained Connacher’s ability to generate cash flow in a context where the Company has a significant debt burden. A reduction in outstanding indebtedness and corresponding interest expense and infusion of new capital is necessary in order to preserve substantial value in the resources, assets and operations of the Company and positions Connacher to regain access to growth capital when commodity markets improve.

The Recapitalization has the support of an ad hoc committee (the “Committee”) of holders of existing second lien secured notes (the “Existing Notes”) (the “Consenting Noteholders”) holding, on a combined basis, approximately 70% of the Existing Notes and approximately 13% of the outstanding common shares. With the support of the Committee any interest coming due and payable under the Existing Notes until the completion of the Recapitalization shall not be paid in cash and any unpaid interest will form part of the principal amount of the Existing Notes that is exchanged for common shares of the Company under the terms of the Recapitalization.

In addition, the directors and officers of Connacher holding, on a combined basis, approximately 0.76% of the common shares have agreed to vote all of their common shares in favour of the approval and adoption of the Recapitalization.

BMO Capital Markets, Connacher’s financial advisor, has provided an opinion to Connacher’s Board of Directors that the terms of the Recapitalization are fair, from a financial point of view, to the Company. Based on a range of factors, including the fairness opinion and advice of outside legal counsel, Connacher’s Board of Directors is unanimously recommending that all holders of Existing Notes and common shares support the Recapitalization, which will significantly reduce the Company’s debt and provide liquidity for ongoing operations.

Connacher expects to hold separate meetings of holders of Existing Notes and common shares in late March 2015 in Calgary, Alberta to obtain the required approvals for the steps necessary to implement the Recapitalization transaction, including approval by the holders of Existing Notes and common shares of a Plan of Arrangement. Details of the Recapitalization will be provided in an information circular expected to be distributed to holders of Existing Notes and common shares before the end of February. In addition to approval by holders of Existing Notes and common shares, implementation of the Plan of Arrangement is subject to final approval of the Court and receipt of all necessary regulatory and stock exchange approvals.

The Company anticipates the Recapitalization to be completed by early April 2015.

Operational Update

Connacher’s Great Divide production for Q4 2014 averaged 15,250 bbl/d. December 2014 production was 15,500 bbl/d. All production numbers are based on field estimates. Production has increased in each quarter of 2014 and Q4 2014 was 34 per cent higher than the prior year’s fourth quarter (Q4 2013 – 11,375 bbl/d).

Great Divide also achieved record production for the year ended 2014. The Company’s 2014 bitumen production averaged 14,140 bbl/d, 20 per cent higher than the prior year (2013 – 11,783 bbl/d). The Company has been able to achieve record production by capitalizing on its 2013 and 2014 drilling programs which added 5 well pairs and 13 infill wells. Nine of the 13 infill wells are currently on production. Asset reliability is also a large contributor to these results. The Company has achieved industry leading operating uptime of 97 per cent for the year ended 2014.

Capital spending in Q4 2014 was focused on the mini-steam expansion project at Pod One and the SAGD+® process commercial project at Algar. The Company has decided to delay completion and tie-in of these projects and reduced growth capital spending by 70%. As a result, 2015 growth capital expenditures are currently budgeted at approximately C$15 million, down from C$49 million as originally budgeted.

The Company’s cash balance as at December 31, 2014 was $94.2 million.

The Company has entered into an amendment and waiver agreement with the lenders under its existing revolving credit facility. Among other things, the maximum commitment amount has been reduced to C$20.1 million and will be reduced as existing letters of credit are replaced. No new advances will be permitted under the facility and a waiver of default has been granted to facilitate the Recapitalization.

Advisories & Contact

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of the securities in the United States or in any other jurisdiction in which such offer, solicitation or sale would be unlawful. The securities have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements thereunder.

Additional Information and Conference Call

Connacher will host an investor conference call on February 2, 2015 at 8:00 a.m. MST. Participants can call in to (888) 231-8191. Please use the Conference ID# 78991722. Participants are encouraged to call in five minutes prior to commencement. An audio webcast of the conference call will also be available through the Company’s website, or through the following link:

About ConnacherConnacher is a Calgary-based in-situ oil sands developer, producer and marketer of bitumen. The Company holds a 100 per cent interest in approximately 450 million barrels of proved and probable bitumen reserves and operates two steam assisted gravity drainage facilities located on the Company’s Great Divide oil sands leases near Fort McMurray, Alberta.

Forward-Looking Information

Certain information regarding the Company contained herein constitutes forward-looking information and forward-looking statements (collectively, “forward-looking statements”) under the meaning of applicable securities laws. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, guidance, or other statements that are not statements of fact, including statements regarding [(i) the anticipated benefits of the Recapitalization, including the reduction in debt and interest expense, (ii) the financial position of the Company after giving effect to the Recapitalization, (iii) anticipated timing for completion of the Recapitalization, and (v) other risks and uncertainties described from time to time in the reports and filings made by Connacher with securities regulatory authorities. Although Connacher believes that the assumptions underlying, and expectations reflected in, such forward-looking statements are reasonable, it can give no assurance that such assumptions and expectations will prove to have been correct. There are many factors that could cause forward-looking statements not to be correct, including, but not limited to, risks and uncertainties inherent in the Company’s business and risks and uncertainties associated with securing the necessary approvals to implement the Recapitalization. These risks include, but are not limited to: crude oil, dilbit and diluent price volatility, exchange rate fluctuations, availability of services and supplies, operating hazards, access difficulties and mechanical failures, weather related issues, uncertainties in the estimates of reserves and in projection of future rates of production and timing of development expenditures, general economic conditions, and the availability of qualified personnel or management, and other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by Connacher.

The forward-looking statements contained herein are made as of the date of this news release solely for the purpose of generally disclosing Connacher’s Recapitalization transaction, and prospective activities. Connacher may, as considered necessary in the circumstances, update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise, but Connacher does not undertake to update this information at any particular time, except as required by law. Connacher cautions readers that the forward-looking statements may not be appropriate for purposes other than their intended purposes and that undue reliance should not be placed on any forward-looking statement. The Company’s forward-looking statements are expressly qualified in their entirety by this cautionary statement.

Key Terms of the Recapitalization

Treatment of Existing Notes

•

The Existing Notes listed below will be affected by the Recapitalization:

–

C$350 million aggregate principal amount of 8.75% Notes due August 1, 2018

–

US$550 million aggregate principal amount of 8.50% Notes due August 1, 2019

•

Holders of Existing Notes (“Noteholders”) will receive 98% of the recapitalized equity of Connacher as follows:

(i)

Noteholders will surrender their Existing Notes in exchange for their pro rata share, based on the face amount of Existing Notes held plus all obligations owed to Noteholders, of 98% of the recapitalized equity of Connacher;

(ii)

Existing Note Claims shall consist of all outstanding obligations owed to noteholders, including the February 1, 2015 interest payment;

(iii)

In addition, all existing Noteholders meeting the eligibility requirements outlined below will have an opportunity to participate (the “Convertible Note Participation Process”) in amounts up to their pro rata share, based on the face amount of Existing Notes held, in the issuance of New Convertible Notes in an aggregate principal amount of up to US$35 million.

In effect, depending upon the exchange rate at the funding of the transaction, it is estimated that for every C$1,000,000 of face value of Existing Notes held by an existing Noteholder, such Noteholder may participate in up to US$33,351 (utilizing an exchange rate of $1.2717 CAD/USD as of January 30, 2015) of the New Convertible Notes.

The deadline for making a commitment to participate in the New Convertible Notes will be set out in the information circular which is expected to be available before the end of February 2015.

To qualify to participate in the New Convertible Notes, Noteholders must meet the following criteria:

a)

be a holder of Existing Notes on the record date for the Recapitalization; and

b)

if such person is in the United States, be an institution that is an “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the United States Securities Act of 1933, as amended.

Specific instructions on how to participate in the New Convertible Notes will be provided in an information circular which is expected to be available before the end of February 2015.

Support Agreements

An ad hoc committee of Noteholders (the “Committee”) has executed support agreements with Connacher whereby they have agreed to vote in favour of and support the Recapitalization. The Committee holds approximately 70% of the outstanding principal amount of the Company’s Existing Notes. Connacher will continue to solicit and obtain additional Noteholder support for the Recapitalization. In addition, certain members of the Committee (“Backstoppers”) have entered into commitment agreements with Connacher to the effect that any amount of the New Convertible Notes that is not provided by Noteholders shall be provided by the Backstoppers. Additional details with respect to the backstop arrangements are described below.

Treatment of Existing First Lien Term Loan and Revolving Credit Facility Obligations

Members of the Committee have entered into commitment agreements with Connacher to provide a C$30 million New Term Loan in replacement of the Revolving Credit Facility at the option of Connacher.

First Lien Term Loan obligations will be unaffected by the Recapitalization. The Recapitalization will be implemented in accordance with the existing “Permitted Second Lien Notes Restructuring” provision of the First Lien Term Loan.

Treatment of Existing Shares

Existing holders of common shares of Connacher (“Shareholders”) will retain their existing common shares (adjusted for the Share Consolidation described below) and such shares will represent approximately 2% of the outstanding common shares of Connacher after giving effect to the Recapitalization and prior to the conversion of any New Convertible Notes.

Share Consolidation

In conjunction with the Recapitalization, the Company’s issued and outstanding common shares will be subject to a share consolidation, the terms of which will be determined prior to the distribution of the information circular.

Terms of the New Term Loan

The following is a summary of selected terms of the New Term Loan:

Issuer:

Connacher Oil and Gas Limited (“Connacher” or the “Company”)

Principal Amount:

C$30 million

Maturity:

August 31, 2018

Interest:

LIBOR plus 9.75% cash payable quarterly in arrears

Backstop Commitment:

Certain members of the Ad Hoc Committee (“Backstoppers”)

Backstop Consideration:

5% payable on closing in common shares or cash consideration payable, at the election of each Backstopper

Guarantors:

Substantially the same as the Revolving Credit Facility

Ranking :

Secured on a senior basis to the existing First Lien Term Loan and the New Convertible Notes

Use Of Proceeds:

Maintain letters of credit and provide incremental liquidity to the Company, subject to the covenant package to be agreed upon between the Company and the Backstoppers

Terms of the New Convertible Notes

The following is a summary of selected terms of the New Convertible Notes:

Issuer:

Connacher Oil and Gas Limited (“Connacher” or the “Company”)

Principal Amount:

US$35 million

Maturity:

August 31, 2018

Interest:

12% cash payable quarterly in arrears, or, at Connacher’s option with respect to any interest payment, 14% PIK (interest will not be paid in cash, but will continue to accrue and be dealt with pursuant to the Plan)

Backstop Commitment:

Certain members of the Ad Hoc Committee (“Backstoppers”)

Backstop Consideration:

5% cash consideration, payable on closing to the Backstoppers and any consenting noteholders who executed the support agreement as of January 30th to subscribe to their pro rata portion of the New Convertible Notes (“Committed Subscribing Initial Consenting Noteholders”)

Allocation:

Available to all existing eligible holders of the Existing Notes on a pro rata basis (based on their Notes Claims as of the Record Date divided by the Notes Claims of all Noteholders as of the record date)

Guarantors / Security:

Substantially same as existing indenture for the Existing Notes

Ranking:

Secured subordinate to the New Term Loan and First Lien Term Loan

Conversion:

Convertible at the option of (i) any individual holder of the New Notes and (ii) in full at the option of holders of 66-2/3% of the New Notes outstanding, with the consent of each Backstopper and any Committed Subscribing Initial Consenting Noteholders (provided that the consent of a Backstopper or a Committed Subscribing Initial Consenting Noteholder shall only be required if that party still retains 75% of the original principal amount of the New Notes issued to that party on the effective date of the Recapitalization)

Prior to February 17, 2015, the Company and the Backstoppers and any Committed Subscribing Initial Consenting Noteholders may elect to structure the form of consideration for the New Notes in a tax efficient manner, including without limitation, by exchanging the New Notes for (i) new second lien notes and warrants or (ii) new second lien notes and common shares to be issued on the effective date of the Recapitalization

Use Of Proceeds:

Incremental liquidity needs of the Company, subject to the covenant package to be agreed upon between the Company and the Backstoppers

Mandatory and Voluntary Prepayments:

Substantially the same as the existing indenture for the Existing Notes

Backstop Arrangements

The Backstoppers have entered into an agreement (the “Backstop”) with Connacher whereby they have, subject to certain conditions, committed to fund any portion of the New Convertible Notes that is not funded by the Convertible Notes Participation Process.

The Backstop may be terminated upon (among other event) the termination of the Support Agreement, the occurrence of a material adverse change (as defined in the agreement) or April 30, 2015.